29th July 2011

Defaqto: Three steps for effective adviser SIPP due diligence

Independent financial research company Defaqto has today published a guide for advisers to help them select appropriate self invested personal pension (SIPP) providers for their business and, ultimately, suitable SIPPs for their clients. 

The SIPP industry is undergoing considerable change. Defaqto data shows that the number of SIPPs available has increased by 17% since 2010.  At the same time, there has been growing evidence in recent months of the long-predicted consolidation of the industry.  In addition, the SIPP industry is facing a number of challenges, resulting from regulatory and policy changes as well as continued downward pressure on revenue from low interest rates and the cost of the Financial Services Compensation Scheme (FSCS) levy.  

According to Defaqto’s Guide to SIPPs, the dynamic and competitive nature of the SIPP industry, as well as the complex nature of the products themselves, makes due diligence more important than ever from an adviser’s perspective. 

To help advisers with SIPP selection, the guide highlights three key steps that intermediaries should focus on to support effective due diligence:

1. Identifying the type of SIPP provider an adviser should partner with to ensure a fit with the needs of their business
2. Within this, identifying specific SIPP providers that they can establish an effective long-term relationship with
3. Finally, selecting the right SIPP by considering the key features of different options and assessing which SIPP best meets a client’s needs

Within these areas, the guide highlights specific elements that advisers should consider when performing due diligence, including:

• A SIPP provider’s financial strength
• The nature of a provider’s administration and service proposition
• The level of service that a provider offers advisers
• The investment types allowed and the investment partners that can be accessed

Andy Leggett, Defaqto’s Insight Analyst for Wealth Management, said:

“While allowing clients a great deal of investment flexibility, the flip side is that SIPPs are complex products.  As a result, advisers will want to take advantage of the benefits that SIPPs offer without incurring unnecessary costs or introducing unwelcome complications for them or their clients. 

“Given the long-term nature of pensions and the move to financial-planning based relationships, it is key that advisers focus on working with the right partners.  Add to that the dynamic nature of the SIPP industry, which is fragmented and highly competitive, and advisers need to review partner selection on a recurring basis to be able to respond to changes if appropriate. Robust due diligence is essential and independent analysis is invaluable to support an adviser’s selection and ongoing review process.”    

Defaqto’s Guide to SIPPs is accredited by the Institute of Financial Planning for Continuing Professional Development and can be downloaded, free of charge, at: www.defaqto.com/adviser/ifa/guides.

Defaqto’s adviser research tool – Engage – includes financial strength ratings of SIPP providers.  Provided by actuarial firm AKG, these ratings indicate a SIPP provider’s ability to survive for the long-term.

In addition, Defaqto’s Star Ratings for SIPPs help advisers understand the overall level of features and benefits offered by all SIPPs on the market.  Taking a wide range of features and benefits into account, Defaqto gives each product a rating from 1 to 5 depending on how comprehensive they are.  Star Ratings aim to support advisers’ recommendations and allow them to understand where a product sits within the wider market.  Advisers can visit www.defaqto.com/star-ratings/sipps to access this year’s ratings for SIPPs.

Defaqto also provides bespoke consultancy services for advisers, including assistance on SIPP due diligence.

Investments